Let’s be clear, these are legal tax avoidance means rather than illegal tax evasion schemes…

 1) Individual Savings Accounts

For the 2017/18 and 2018/19 tax year, you can save a maximum of £20,000 in an ISA, whether that’s in cash, stocks and shares or a mix (see YourMoney.com’s Which ISA is right for you? for more information).

While cash ISA rates have struggled to keep up with the rates offered on standard savings accounts, one of the major benefits of them is that the interest is completely tax-free, year after year.

When it comes to investment ISAs, those that pay interest or an income are also tax-free while any profit you make when selling the investments will also be free of Capital Gains Tax, which is of particular use to those who make gains of more than £11,300 outside of the tax wrapper.

Further, dividends received on shares held in an ISA are also tax-free and won’t impact the existing £5,000 dividend allowance (set to fall to £2,000 in April 2018).

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Lastly, your money can be withdrawn tax-free at any time and for any purpose.

2) Pension savings

Millions of workers are now members of a workplace pension scheme, allowing them to save for retirement. The money gains valuable tax-relief on the way in – 20% for basic rate taxpayers which means for every £800 invested, the government adds £200 to make a total of £1,000 in the pension scheme.

Higher and additional rate taxpayers receive a greater uplift from tax relief. If they pay in £800, the government adds £200. But these workers can also claim a further £200 from their self-assessment tax (25% tax relief for additional rate taxpayers), unless the deduction of the contribution has been taken from gross pay, before calculation and deduction of income tax. Essentially this means a higher rate taxpayer can achieve a £1,000 pension for a net cost of £600.

The tax relief applies to the self-employed though this band of workers will need to claim via self-assessment.

Kay Ingram, director of public policy at LEBC, explains that pensions are tax exempt while they’re being built up: “Money in a pension arrangement doesn’t pay tax on growth or income within the fund.

“When you draw money out then you pay income tax on anything other than the first 25% tax free amount. But while the pension fund is invested, it pays no tax. Pension money invested can often produce an income, for example if the fund is invested in property, the rent is tax exempt. If it’s invested in shares, they can pay tax-free dividends within the fund.”

3) Investment bonds issued by UK insurance companies

These bonds are provided by insurance companies and most are on the recommendation of an IFA. Technically, they’re whole of life policies.

If you’re a basic rate taxpayer, you have no personal liability to tax within this structure so you pay no tax on the fund while it is rolling up. For higher rate 40% taxpayers, their personal liability is set at 20% while the insurance company pays an equivalent 20% tax on their profits. If you want to cash in the bond or withdraw money from it, you only pay tax on the amount if you’re a higher rate or additional rate taxpayer (though there is a way round this – see just below).

Each person is able to withdraw 5% each year of the capital invested so if you invest £20,000, you can withdraw £1,000 without having to pay tax on it, even if you’re a higher rate taxpayer.

Ingram explains this is allowed because until you withdraw 100% capital, you’ve not actually withdrawn taxable profit. “For example, £20,000 over 20 years allows the investor to withdraw £20,000 and there’s no tax on this amount as HMRC has deemed it to be return of capital.”

However, she says these investment bonds aren’t as efficient as pensions as there’s no relief on the way in, but for those who’ve exhausted their pension allowance, this can be a useful way to invest for growth or income, particularly for those with a long-time horizon.

Further, Ingram explains investment bonds issued by UK insurance companies can be a useful tool for higher rate taxpayers to gift money to children or grandchildren: “You can gift the bond to someone who’s a lower rate taxpayer. If you hang on to the bond you will pay tax if you’re a higher rate taxpayer but if you give it to a non-taxpayer, you don’t pay tax on cashing in the bond or transferring it.”

Unlike pensions and ISAs, there’s no limit on the investment amounts here and investors can decide on the underlying investment, whether it’s cash, commercial property, fixed interest or shares in the UK or around the globe.

4) Gift to charity

“Many people don’t appreciate the benefit of gift aid, especially higher rate taxpayers,” Ingram says.

If you’re a UK resident and a taxpayer, a charity can claim the extra 25% back from HMRC.

For higher rate taxpayers gifting to charity, you can add this amount to your tax return to widen the tax window.

Ingram explains: “If you’re a higher earner (over £45,000 a year in England, £43,000 in Scotland) and you gift £1,000 to charity, your higher rate band would only apply over £46,000 (£44,000 in Scotland).”

As an example, a higher rate taxpayer who gives £100 to charity, enables the charity to receive £125, though it’s only cost the taxpayer £75 as they’ve gained £25 tax relief (£70 and £30 respectively for an additional rate taxpayer).

Again, there’s no limit on amounts which can be given to charity “which is why the wealthy often give to charity”, Ingram notes.

If people leave legacies to charity, that’s also tax exempt. By leaving 10% of your estate to charity, the rate of inheritance tax reduces from 40% to 36% on the balance.

5) Venture Capital Trusts and Enterprise Investment Schemes

EISs and VCTs were introduced by the government in 1994 and 1995 respectively to encourage investment into early stage and new companies.

As they’re riskier for investors, there are tax incentives for both.

VCTs are run by a fund manager who invests in small companies, which are either unquoted or listed on the Alternative Investment Market (AIM). They receive income tax relief of 30% on investments (provided you keep the shares for at least five years) of up to £200k in any tax year, though the minimum investment tends to be between £3,000 and £5,000.

Octopus Investments gives the following example: “If you invest £10,000 in a VCT, £3,000 can be taken off your income tax bill, although the amount of income tax you claim cannot exceed the amount of income tax due.

Dividends are also tax-free so don’t need to be declared on your tax return and if you decide to sell your VCT and make a profit, the proceeds won’t be liable for capital gains tax.

In contrast, EIS investments are held directly by the individual who is investing so it’s fair to say that they’re a bit more complicated than a VCT.

With these, you also gain income tax relief of 30%, though this applies to investments of up to £1m in any tax year, including up to £1m backdated to the previous tax year.

Other points of note for investors include: 100% capital gains tax deferral for the life of the investment, 100% inheritance tax relief after two years (provided it’s still held at the time of death) and growth in value of EIS is capital gains tax free.

See YourMoney.com’s EIS and VCT guide for more information.